This was probably inevitable: the minute that Dodd-Frank cracked down on the fees charged by credit cards aimed at students, some other bright financial innovation would crop up. This time, a debit card aimed at students. Which carries lots of fees. Ylan Mui reports that a company called Higher One has started signing up colleges around the country, taking on the burden of providing cash to students. In return, it gets lots of fees:
Students say several of the fees associated with Higher One’s card are particularly irksome, including the $19 inactivity fee, a 50-cent charge for using a PIN to make a purchase rather than a signature, and a $2.50 fee for using other banks’ ATMs…
Higher One said that only 1 percent of customers have been charged an inactivity fee and that more than half are charged the 50-cent fee only once. All fees are listed on Higher One’s Web site, along with tips on avoiding them.
“We have a big effort with educating students on how to use the account,” Smith said. “We’re very passionate about financial literacy.”
If the fees are listed on Higher One’s website, they’re not exactly prominent. I did find this page, eventually, via this blog entry, but it just says that “when you swipe & sign, you won’t be charged the PIN-based transaction fee”. I haven’t been able to find a page showing a 50-cent transaction fee anywhere*, although I did manage to find this page, showing a $25 fee for domestic wire transfers and a $50 fee for international wire transfers. “Higher One offers less costly alternatives for transferring funds”, it says, without giving any indication what they might be; I suspect that what they’re talking about is transfers to or from people who have already registered somehow with Higher One.
It should go without saying that any firm which is “very passionate about financial literacy” would encourage, rather than penalize, simple, cheap and safe PIN-debit transactions. It would not give students a debit card and then tell them that if they want to avoid fees they should select the “credit” option rather than the “debit” option when they come to pay.
And I can’t think of any good reason to charge a $19 inactivity fee to people who haven’t used their cards in 9 months.
The fact is that students are often very naive when it comes to money, and it’s easy to gouge them once or twice before they learn that banks are not necessarily on their side. If you can get your card accepted by a majority of freshmen every year, and then come up with all manner of weird fees to hit them with, that’s a great way of making money out of ignorance.
Meanwhile, all students should have a bank account: giving them a debit card instead only serves to maximize the number of unbanked students. So while I’m sure cards like this are attractive to colleges, it would be great if either the colleges or else the Consumer Financial Protection Bureau started being a lot more critical of them. Prepaid cards only ever make sense if the alternative is being completely unbanked; that should not ever be the case for students.
*At Southern Oregon University, Higher One agreed to waive the 50-cent PIN-debit charge, but only if there was a simultaneous “swipe-and-sign” campaign. If the campaign is unsuccessful and students do the sensible thing by using PIN debit, then the university can be charged $2 per student for “PIN fee elimination”.
Update: Higher One’s Donald Smith responds:
Higher One was founded 10 years ago by three college students (undergraduates at the time) who were looking for streamlining the way financial aid refunds were distributed to students. Today we work with more than 675 campuses across the country, have a 97% client retention rating, and an A+ rating with the BBB.
The OneAccount is Higher One’s optional, no minimum balance, no monthly fee, FDIC-Insured checking account created by students for students. We do not offer a stored value card. We are very open with our fee schedule. We post it on every program website for all to access, explain each fee, discuss how to avoid each fee, and provide students with a web page that tells them how to use the account for free (which you’ve already found). Because of this, we believe that our customers pay less than half the amount in fees that the average bank checking account customer pays per year.
Two of the fees you referenced in your blog are the PIN fee and the Abandoned Account Fee. The PIN fee is easily avoided by choosing a signature based transaction at the checkout. The majority of students uses it in this manner and is in turn protected by MasterCard’s Zero Liability Policy against fraudulent charges (a safer way of purchasing than a PIN based transaction). We do not have an inactivity fee on our fee schedule – we don’t penalize students who do not use their accounts. We do have an Abandoned Account Fee of up to $19, for those who have abandoned their accounts, but this has been charged to less than 1% of all OneAccount holders in our company’s history because of our proactive outreach plan.
Higher One offers no instruments of credit. As a matter of fact, we’re generally in favor of initiatives restricting students’ access to credit cards and promoting financial literacy. This is why we offer a full range of financial literacy resources along with the services we provide.
I particularly dislike the implication, here, that PIN-based transactions are unsafe. They’re not; they’re just less lucrative, in terms of interchange fees, than signature-based transactions.
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Thanks for sharing this post!
Posted by: JiHye |
September 26, 2010 7:19 PMThe Twilio Fund for startups is an awesome idea.
Posted by: Richard Uren |
September 27, 2010 3:00 AMThanks for posting this tips. There are a lot of SaaS applications out on the web and only a few of them are successful. Personally, I think Basecamp (Project Management System) opened everyone's eyes on how to present a SaaS.
To anyone that found this post helpful - check out this book as well -
Free: The Future of a Radical Price by Chris Anderson
Posted by: avisra |
September 27, 2010 5:26 AM"It's a formula that doesn't come up with the price by adding up the costs and then tacking on enough to make a profit."
Interesting. It'll work for a while, but once there are a couple of similar competitors, prices will be driven down to costs plus a small delta. So make hay while the sun shines!
Posted by: Sam Mason |
September 27, 2010 5:38 AMThe SaaS model almost demands value-based pricing, because most of the costs are fixed. The cost per user will be determined by the number of users, which is impossible to predict when you're first setting prices.
Having said that, if you price it too high or don't watch your costs, you leave yourself vulnerable.
Six Apart is a good example of a company that never figured out how to price their product.
Posted by: Barry Parr |
September 27, 2010 9:21 AMC'mon folks. Twilio isn't a SaaS, it's a VoIP reseller.
Mutton isn't lamb is it?
Posted by: James Barnes |
September 27, 2010 11:47 PMThanks for sharing this post!
Posted by: JiHye |
September 26, 2010 7:19 PMThe Twilio Fund for startups is an awesome idea.
Posted by: Richard Uren |
September 27, 2010 3:00 AMThanks for posting this tips. There are a lot of SaaS applications out on the web and only a few of them are successful. Personally, I think Basecamp (Project Management System) opened everyone's eyes on how to present a SaaS.
To anyone that found this post helpful - check out this book as well -
Free: The Future of a Radical Price by Chris Anderson
Posted by: avisra |
September 27, 2010 5:26 AM"It's a formula that doesn't come up with the price by adding up the costs and then tacking on enough to make a profit."
Interesting. It'll work for a while, but once there are a couple of similar competitors, prices will be driven down to costs plus a small delta. So make hay while the sun shines!
Posted by: Sam Mason |
September 27, 2010 5:38 AMThe SaaS model almost demands value-based pricing, because most of the costs are fixed. The cost per user will be determined by the number of users, which is impossible to predict when you're first setting prices.
Having said that, if you price it too high or don't watch your costs, you leave yourself vulnerable.
Six Apart is a good example of a company that never figured out how to price their product.
Posted by: Barry Parr |
September 27, 2010 9:21 AMC'mon folks. Twilio isn't a SaaS, it's a VoIP reseller.
Mutton isn't lamb is it?
Posted by: James Barnes |
September 27, 2010 11:47 PM
The Fox <b>News</b> “Lawn Jockey” and The Tolerant Left | RedState
Juan Williams' firing did not happen in a vacuum. It happened in the context of him having been the official Fox News lawn jockey stooge for years.
autosport.com - F1 <b>News</b>: Tweaks to be made to Korean track
Korean Grand Prix organisers are making minor modifications to the new Formula 1 track on Friday night following complaints from drivers about potential trouble spots on the new Yeongam circuit.
Surprise: Fox <b>News</b> signs Juan Williams to new $2 million deal <b>...</b>
Fox News Chief Executive Roger Ailes handed Williams a new three-year contract Thursday morning, in a deal that amounts to nearly $2 million, a considerable bump up from his previous salary, the Tribune Washington Bureau has learned. ...
eric seiger eric seiger
This was probably inevitable: the minute that Dodd-Frank cracked down on the fees charged by credit cards aimed at students, some other bright financial innovation would crop up. This time, a debit card aimed at students. Which carries lots of fees. Ylan Mui reports that a company called Higher One has started signing up colleges around the country, taking on the burden of providing cash to students. In return, it gets lots of fees:
Students say several of the fees associated with Higher One’s card are particularly irksome, including the $19 inactivity fee, a 50-cent charge for using a PIN to make a purchase rather than a signature, and a $2.50 fee for using other banks’ ATMs…
Higher One said that only 1 percent of customers have been charged an inactivity fee and that more than half are charged the 50-cent fee only once. All fees are listed on Higher One’s Web site, along with tips on avoiding them.
“We have a big effort with educating students on how to use the account,” Smith said. “We’re very passionate about financial literacy.”
If the fees are listed on Higher One’s website, they’re not exactly prominent. I did find this page, eventually, via this blog entry, but it just says that “when you swipe & sign, you won’t be charged the PIN-based transaction fee”. I haven’t been able to find a page showing a 50-cent transaction fee anywhere*, although I did manage to find this page, showing a $25 fee for domestic wire transfers and a $50 fee for international wire transfers. “Higher One offers less costly alternatives for transferring funds”, it says, without giving any indication what they might be; I suspect that what they’re talking about is transfers to or from people who have already registered somehow with Higher One.
It should go without saying that any firm which is “very passionate about financial literacy” would encourage, rather than penalize, simple, cheap and safe PIN-debit transactions. It would not give students a debit card and then tell them that if they want to avoid fees they should select the “credit” option rather than the “debit” option when they come to pay.
And I can’t think of any good reason to charge a $19 inactivity fee to people who haven’t used their cards in 9 months.
The fact is that students are often very naive when it comes to money, and it’s easy to gouge them once or twice before they learn that banks are not necessarily on their side. If you can get your card accepted by a majority of freshmen every year, and then come up with all manner of weird fees to hit them with, that’s a great way of making money out of ignorance.
Meanwhile, all students should have a bank account: giving them a debit card instead only serves to maximize the number of unbanked students. So while I’m sure cards like this are attractive to colleges, it would be great if either the colleges or else the Consumer Financial Protection Bureau started being a lot more critical of them. Prepaid cards only ever make sense if the alternative is being completely unbanked; that should not ever be the case for students.
*At Southern Oregon University, Higher One agreed to waive the 50-cent PIN-debit charge, but only if there was a simultaneous “swipe-and-sign” campaign. If the campaign is unsuccessful and students do the sensible thing by using PIN debit, then the university can be charged $2 per student for “PIN fee elimination”.
Update: Higher One’s Donald Smith responds:
Higher One was founded 10 years ago by three college students (undergraduates at the time) who were looking for streamlining the way financial aid refunds were distributed to students. Today we work with more than 675 campuses across the country, have a 97% client retention rating, and an A+ rating with the BBB.
The OneAccount is Higher One’s optional, no minimum balance, no monthly fee, FDIC-Insured checking account created by students for students. We do not offer a stored value card. We are very open with our fee schedule. We post it on every program website for all to access, explain each fee, discuss how to avoid each fee, and provide students with a web page that tells them how to use the account for free (which you’ve already found). Because of this, we believe that our customers pay less than half the amount in fees that the average bank checking account customer pays per year.
Two of the fees you referenced in your blog are the PIN fee and the Abandoned Account Fee. The PIN fee is easily avoided by choosing a signature based transaction at the checkout. The majority of students uses it in this manner and is in turn protected by MasterCard’s Zero Liability Policy against fraudulent charges (a safer way of purchasing than a PIN based transaction). We do not have an inactivity fee on our fee schedule – we don’t penalize students who do not use their accounts. We do have an Abandoned Account Fee of up to $19, for those who have abandoned their accounts, but this has been charged to less than 1% of all OneAccount holders in our company’s history because of our proactive outreach plan.
Higher One offers no instruments of credit. As a matter of fact, we’re generally in favor of initiatives restricting students’ access to credit cards and promoting financial literacy. This is why we offer a full range of financial literacy resources along with the services we provide.
I particularly dislike the implication, here, that PIN-based transactions are unsafe. They’re not; they’re just less lucrative, in terms of interchange fees, than signature-based transactions.
Comments
Subscribe to comments for this post OR Subscribe to comments for all ReadWriteCloud posts
The Fox <b>News</b> “Lawn Jockey” and The Tolerant Left | RedState
Juan Williams' firing did not happen in a vacuum. It happened in the context of him having been the official Fox News lawn jockey stooge for years.
autosport.com - F1 <b>News</b>: Tweaks to be made to Korean track
Korean Grand Prix organisers are making minor modifications to the new Formula 1 track on Friday night following complaints from drivers about potential trouble spots on the new Yeongam circuit.
Surprise: Fox <b>News</b> signs Juan Williams to new $2 million deal <b>...</b>
Fox News Chief Executive Roger Ailes handed Williams a new three-year contract Thursday morning, in a deal that amounts to nearly $2 million, a considerable bump up from his previous salary, the Tribune Washington Bureau has learned. ...
eric seiger eric seiger
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